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An investor in a PE fund will often indicate whether they are interested in co-investments (usually in the subscription agreement or in an ancillary letter with the Fund). Such a choice by LP is informative and should not impose any obligation on the supplement (GP) of the Fund. A private equity co-investment (or co-investment) is a minority investment made directly in an operating company in collaboration with a financial sponsor or other private equity investor in an equity buyout, recapitalization or growth capital transaction. In certain circumstances, venture capital firms may also seek co-investors. In addition, several aspects of a co-investment structure can influence a co-investor`s return – which requires proper attention and planning, including: an example is that of Brazilian data center company Aceco T1. Private equity firm KKR Co. acquired the company in 2014 with co-investors, Singaporean investment firm GIC and the Teacher Retirement System of Texas. It was found that the company has done its accounts since 2012 and KKR reduced its investment in the company to zero in 2017. For large private equity funds and other investors, co-investments are a way to increase exposure to attractive transactions and make investments that have a higher return potential due to the lower return paid to the top-up.
As a result, many private equity firms offer their largest and most important investors co-investments to incentivize investment in future funds. While co-investment in private equity agreements has its advantages, co-investors should read the fine print in such agreements before approving them. Co-investment vehicles can be used for skill efficiency and tax planning….